I want to thank you for the invitation to speak with you today. The last year has been
marked by very important - and, at times, contentious - developments on the health care fraud
front. Today, I would like to highlight some of the progress we have made in the past year, touch
briefly on some current and future enforcement priorities, and conclude with some thoughts on
how we can work together to root out fraud and abuse in the health care system.

Health Care Fraud - Still A Problem

As you know all too well, fraud and abuse continue to plague the health care industry.
Each year, American taxpayers lose billions of dollars to fraud and abuse in the health care
system -- funds that could be used to expand health care for children, meet the health needs of
elderly Americans, and fight AIDS and other life-threatening diseases.

Dollars alone, however, do not tell the whole story. All too frequently, we are seeing
examples where the fraudulent conduct involved the systematic and knowing denial of medically
necessary services - conduct that poses a threat to the health and safety of individual patients. In
other instances, the fraud schemes involved medically unnecessary procedures - including
unnecessary surgery - that posed a risk to the health and safety of individual patients. And in a
shocking number of cases, we are seeing instances where fraudulent providers are paying parents
to bring their children into sham clinics, where they are subjected to totally unnecessary
procedures. We have found for example that parents are paid more for girls, because of the high
reimbursement rates for some gynecological services.

The Past Year

Over the past year, we confronted major challenges in the relationship between the health
care industry and the government, particularly the enforcement agencies. Some of these
challenges were the result of necessary changes in the way the government addresses fraud and
abuse in the health care system. For too long, the payment system had insufficient controls and
enforcement activity. Compliance was not a sufficient priority within the industry or the
government. Where overpayments were uncovered, even widespread patterns of overpayments,
the matter was handled -- if at all -- through the administrative recoupment process. The lack of
effective compliance and enforcement efforts resulted in massive losses from the Medicare and
Medicaid programs.

The excesses led to a legitimate desire to crack down on fraud and abuse. In 1993, the
Attorney General designated health care fraud as one of her top priorities. In 1996, Congress
responded by giving the Department of Justice and HHS Office of Inspector General new tools
and new resources to combat health care fraud and abuse.

Now, and in response to some of our enforcement efforts, there has been understandable
concern within the industry about these changes and what have been, at times, heavy-handed
treatment by the government.

What do I make of the events of the past year? First, I want to say that I am proud of the
Department's accomplishments in the health care fraud area. Over the past two years, our civil
and criminal caseload has increased and we have achieved a record number of criminal
convictions and civil settlements. In 1997, we returned almost $1 billion dollars to the Medicare
Trust Fund from criminal fines and civil settlements and judgments. We have also worked
closely with the HHS OIG on their efforts to exclude unscrupulous providers, which is one of the
best ways of maintaining the integrity of the health care system. In addition to these statistics, I
was particularly heartened by two relatively recent items.

First, a GAO review of the Department's use of the FCA concluded that our enforcement
efforts were having a major impact on compliance within the industry. Let me quote:

... [H]ospital account managers told us that historically their offices received low priority
for computer and staff resources and that the new attention to compliance has already
been helpful in their effort to design billing systems that will better ensure accuracy. (Id.)

And the report concludes:

AHA representatives acknowledged . . . that using the False Claims Act got the attention
of hospitals and led them to focus on improving their billing practices. (Id. at 20)

Second, I was encouraged by a front page article in the New York Times on [date]. The
article noted that the growth in Medicare spending in 1998 was the lowest since the program
started in 1965. While there are several factors involved, most experts - including many in the
health care industry - agree that our aggressive efforts are having a positive and systemic impact
on fraud and abuse in the health care industry.

While I am proud of our efforts, I recognize that at times our approach has been perceived
to be heavy-handed. While the Attorney General and I expect our prosecutors to be aggressive,
we must at all times be fair and even-handed. This is a bedrock principle for us, and where we
fall short, we will take appropriate corrective action.

Last summer, in response to concerns about our enforcement efforts, I issued Guidance to
all U.S. Attorneys offices and Civil Division health care fraud attorneys on the use of the False
Claims Act. The Guidance reiterated long-standing policies and practices regarding the use of
the False Claims Act generally, and established new oversight and coordination procedures for
the development of so-called national initiatives - the types of projects that have stirred the most
concern within your organization. Finally, the Guidance reaffirms that the False Claims Act
should be the basis for suit only where there is evidence that false claims were submitted
knowingly - that is, with actual knowledge or in deliberate ignorance or reckless disregard of the
truth. Let me make this VERY clear: the False Claims Act does not address - and we should
never use it to pursue - honest billing mistakes or mere inadvertence.

Over the past several months, we have placed great emphasis on compliance with the
Guidance in all U.S. Attorneys offices. We have incorporated training on the guidance into
virtually every health care fraud and affirmative civil enforcement training program sponsored by
the Department. We are currently winding up an initial review of the Guidance, and I will soon
be issuing a memorandum that summarizes the results of this review, reiterates that the Guidance
applies to all civil health care matters investigated under the False Claims Act, and clarifies a
number of other important points.

Current Enforcement Efforts

I think we have accomplished a great deal over the past year. On our side, we have
refined our enforcement efforts to ensure that they are tough, fair, and even-handed. And on
your side, I believe you have recognized that our enforcement program will remain robust and
that the health care industry must focus greater attention and resources on comprehensive and
effective compliance programs.

Unfortunately, the two new national enforcement projects that the Inspector General just
discussed - the PPS Transfer and Pneumonia Upcoding Projects - highlight the continuing need
for aggressive enforcement efforts. With respect to both projects, the illegal billing practices
violate clear and unambiguous Medicare rules and regulations that are well known within the
industry. Moreover, with respect to the PPS Transfer Project, the illegal billing practices have
been the subject of nationwide audits by the HHS Inspector General. These earlier audits found
widespread false billings by hospitals nationwide -- costing taxpayers hundreds of millions of
dollars. To the extent possible, the overpayments were recovered through the administrative
recoupment process.

Subsequent audits, however, found continued widespread violations by hospitals
nationwide. The HHS OIG referred these matters to the Department of Justice for investigation
under the False Claims Act. These investigations - which have been designated as a national
project - are ongoing.

I should add that these projects are being pursued in strict compliance with my June 3
Guidance memorandum. A working group has been established for each project. The working
group has carefully reviewed the data, relevant statutes, rules and regulations, and coordinated its
efforts with the HHS OIG and HCFA. We are confident that there is a sound factual and legal
predicate for both projects.

The Future

While it is instructive to assess how the fraud and abuse issue has evolved over the past
several years, and to explain some of our current enforcement efforts, I would like to offer my
thoughts on where we should go from here.

First, the Department of Justice and our law enforcement partners, particularly the HHS
OIG, will continue our efforts in a number of priority areas, including managed care fraud and
nursing home fraud and abuse.

Our emphasis on managed care is driven by the increasing number of Medicare
beneficiaries enrolled in - and the increasing flow of federal dollars to - managed care
organizations. Let me be perfectly clear - the Department of Justice has no interest in stifling
innovation in the health care industry, nor do we believe that aggressive cost-cutting and down-sizing, without more, should subject managed care organizations to actions under the False
Claims Act. However, the knowing failure to deliver promised services to Medicare, Medicaid
and other beneficiaries of federal health care programs - whether by a managed care organization
or other provider - would violate the False Claims Act, and we will pursue these actions in a
tough and fair manner.

Second, and perhaps more importantly, I think our experience in the recent past - and our
experience with the defense procurement scandals of the 1980s - offer valuable insight into
where we should go from here.

Our experience with the defense industry was similar in ways to our current efforts with
the health care industry - sharp increases in federal spending followed by sharp increases in the
amount of tax dollars lost to fraud and abuse; a significant increase in anti-fraud efforts,
including new tools and new resources from Congress; and subsequent complaints from the
industry about overzealous enforcement efforts.

The defense industry sought legislative relief but, in the end, no legislative action was
taken. The defense industry soon realized that the better approach was to embrace compliance in
a comprehensive and meaningful fashion. Specifically, the major players in the defense industry
created the Defense Industry Initiative, an industry-wide compliance effort. The DII endorsed
specific, comprehensive compliance policies and procedures, and members of the Initiative were
expected to adhere to the these guidelines. We believe the Defense Industry Initiative was a
positive step in fostering compliance within the defense industry. And it can provide a model for
the health care industry.

So today, I would suggest that your organization - the AHA - take the lead in developing
a similar, industry-wide compliance initiative for the health care industry. I recognize the
magnitude of this challenge and the fact that the health care industry is more diverse than the
defense industry - making the development of an industry-wide initiative a daunting task. But I
am sure that when the Defense Industry Initiative was first discussed, there were many nay-sayers who said it could not be done. But it was. Similarly, I believe the AHA and the other
major health care industry groups could develop such an initiative.

Beyond the development of concrete compliance policies and procedures, the Initiative
should include an effective internal oversight mechanism. This could take the form of subjecting
providers to outside audit to determine whether they are living up to the Initiative's policies and
procedures. And appropriate action should be taken against providers that fall short or are found
to have engaged in serious wrongdoing.

For our part, we will continue to cooperate with the health care industry to foster
compliance programs. We will continue to work with the HHS Office of Inspector General on
compliance guides for the industry.

In addition, in the context of specific cases, the Department will continue to look
favorably on providers that implement effective compliance programs and voluntarily report
misconduct to the government. This has been our long-standing policy, and I reiterated this
policy in my June 3rd Guidance Memorandum, which directed Department attorneys to consider
whether a provider has implemented an effective compliance program when determining whether
to bring a False Claims Act action or determining the amount of damages.

This is not just rhetoric. In a recent case in New Jersey, a hospital made a voluntary
disclosure of improper billing to the U.S. Attorney's Office. The U.S. Attorney's Office
investigated the matter, determined that the disclosure was truly voluntary and made in good
faith, and a settlement was reached that was satisfactory to both the provider and the government.
I think this case should serve as a model for future efforts.

Conclusion

In conclusion, I want to emphasize a couple of points. Health care fraud will continue to
be one of the Department's top enforcement priorities, and we will be aggressive in protecting
the integrity of the Medicare Trust Fund. At the same time, we must at all times conduct
ourselves in a fair and even-handed manner. If you feel that you are not being treated fairly, we
have implemented procedures to ensure that providers can have their concerns heard by
appropriate supervisory personnel in the field or at Justice Department headquarters in
Washington, D.C.

But there is still a great deal for us to do. I would urge the AHA to take the lead on
developing a comprehensive, industry-wide compliance initiative - with an effective internal
enforcement mechanism. The Department of Justice, in turn, will continue to look favorably on
providers who implement effective compliance programs, and if you have suggestions on how to
promote compliance efforts, I would like to hear your suggestions. There is a great deal more we
can do to restore the historic trust and partnership between the government and the health care
industry in meeting the health care needs of Americans, and we look forward to working with
you on this very important goal.